Petrochemicals – Lower naphtha cost aids spread

Petrochemical product spreads improved slightly WoW on lower feedstock cost as naphtha price fell 1% WoW despite higher oil price. This reflects slower naphtha demand as the olefins market will stay slow unless capacity rationalization in Asia is pushed up to rebalance the market. China’s latest stimulus package did not boost market sentiment, as its economy faces challenges from slower growth and low inflation, which will continue to hurt petrochemical product spreads. Still cautious.

Average PE/PP spread up slightly WoW but still below cash cost. Product spread for polyolefins products remained poor despite lower naphtha cost: though this raised average PE/PP product spread 5% WoW to US$341/t, it remains below cash cost of US$350/t. Excluding LDPE spread of US$493/t, average PE/PP spread rise 7% WoW to US$290/t vs. 12MMA of US$323/t, implying bearish market sentiment on the large demand-supply imbalance and despite China’s fiscal stimulus. We expect the positive impact of the stimulus on product spread to be muted in 2024 as buyers will prefer to stay cautious amidst volatile oil price and low seasonal demand in 4Q.

Benzene spread down to 10-month low. Benzene price fell 4% WoW to US$940/t, below 12MMA of US$990/t on belief supply will continue high amidst insufficient demand growth. This depressed benzene-naphtha spread 12% QoQ to a 10-month low of US$243/t, though this remains above the 5-year average of US$196/t. Demand for benzene will continue to weaken on slower downstream production rates due to low production season. PX spread over naphtha fell 6% WoW to US$268/t vs. 12MMA of US$393/t. PX demand from downstream PTA was weaker following lower PTA plant operating rates during Golden Week and uneconomic product spread for PTA-PX. The PTA market is expected to move into low season in November/December with some PTA and polyester units likely to do maintenance, reducing demand for PX in 4Q.

Price of PET bottle chips up after Golden Week. Demand for PET bottle chips recovered after the market reopened from China’s Golden Week, driving the price up 3% WoW to a 5-week high of US$890/t. This also reflects higher feedstock cost caused by the recent increase in oil price. Integrated PET spread jumped 41% WoW to a 4-week high of US$135/t, surpassing 12MMA of US$108/t. The persistent overcapacity continues to constrain further upside to PET price and spread. The sizable PET capacity additions during the summer will take time to ramp up fully, and will be fully absorbed by the market. (Czapp). We believe negotiations for end-2024 PET shipments are already completed.